Many electric utility companies use multi-tiered pricing when charging their customers for energy. The nature of these pricing policies can vary from utility company to utility company, but they generally fall into one of four categories.
Time of use (TOU) pricing charges customers different rates for energy based on what time of the day the energy is consumed. Prices are typically highest when the overall demand for energy is the greatest; for example during the hottest part of the day during summer in hot climates. TOU pricing is generally either two or three tiered. In two tiered pricing there are two rates for energy. The higher or peak rate applies during the peak demand times and the lower or off-peak rate applies at other times. In three tiered pricing a near-peak rate is added for the shoulder times around the peak times. Near-peak prices fall between the peak rate and the off-peak rate.
Customer profile pricing uses the customer's historical energy usage to establish a base-line usage that is measured against the current usage to establish the price of energy consumed. These comparisons are usually done on a monthly basis comparing year-over-year usage. For example, a customer that uses more KWH in August of 2007 than they did in August of 2006 would pay a higher price per KWH for their energy. Again there may be either two or three tiers of rates with each rate change point occurring at a set level above the historical usage. These levels can be either fixed KWH offsets or a percentage over the historical usage.
Peak usage pricing uses a fixed peak KWH value as a trigger for higher rates. This “target maximum” usage can be established as a daily target, a monthly target or both. Again, multiple tiers can be used with three being the usual maximum.
Threshold pricing establishes different prices for energy based on usage in a specific period. Table 1 illustrates a typical threshold pricing scheme. The time period for the thresholds can range from 15 minutes up to a month with the kWh limits adjusted accordingly.
TABLE 1Example of a threshold pricing structure for electrical energy.Usage During Period (kWh)Marginal Price per kWhLess than 1$0.07Between 1 and 2$0.15Between 2 and 5$0.23Between 5 and 10$0.40Greater than 10$0.75
In all of the above pricing schemes, the actual limits, triggers and escalators for the rates vary from utility company to utility company. Some utility companies employ multiple schemes simultaneously. For example, an hourly threshold pricing structure can be established with different prices and thresholds based on peak/off-peak times. Likewise, TOU pricing may apply only during summer months and customer profile pricing apply the rest of the year. Additionally, each utility can differ in how the increased rates are applied. As an example, utilities employing peak usage pricing will either apply the higher rate to only the KWH consumed over the peak target while others will apply the higher rate to the entire month's KWH consumption if a single day's usage exceeds the peak.
The implementation of “Advanced Metering Infrastructure” or AMI by the utility companies allows them even greater flexibility in establishing fluid pricing for electricity. AMI meters are digital and have memory and a communications means. These meters can be read electronically by the utility company and provide usage information in time slices down to 15 minutes in duration. All of the major utilities are pursuing an AMI program for their residential customer base. This will allow them to adjust pricing as the wholesale price of electricity changes. The early adopters of this technology are using hourly pricing adjustments with plans to move to a system which adjusts pricing as frequently as every 15 minutes.
Various electric energy consumption measurement and monitoring products are currently available. These products range in functionality from measuring energy consumption of an entire facility to measuring energy consumption of a single appliance or load. Some systems provide for detailed reporting of the measured consumption both after the fact and in real time. Products which can control individual electric loads or appliances are also available. These products can turn loads on or off from a remote location. Some products provide controlling software which will instruct the system to turn loads on or off based on a user specified schedule. While these products can be helpful in reducing a consumer's overall energy consumption, they may not provide sufficient functionality to effectively reduce the consumer's energy bill in a multi-tiered pricing environment. Especially one in which the price of electricity can change every 15 minutes.